Index - Circular

Input Tax Credit

Goods & Services Tax is a Value Added Tax. Tax is required to be paid at each stage and supplier at each stage is eligible or permitted to setoff through a tax credit mechanism. This would eliminate the burden of all cascading effects, including the burden of taxes paid under earlier laws (Excise Duty, Service Tax and VAT).

Input Tax Credits (ITC) available on Capital goods, Inputs & Input services:

Types	Meaning
Capital Goods - Sec. 2(19)	Means goods, the value of which is capitalised in the books of account of the person claiming the credit and which are used or intended to be used in the course or furtherance of business
Inputs - Sec. 2(59)	Means any goods other than capital goods used or intended to be used in the course or furtherance of business.
Input Services - Sec. 2(60)	Means any service used or intended to be used in the course or furtherance of business.

To take ITC, the person shall be a Registered Taxable Person (RTP). Registration is qua a particular State so a person shall be registered in the State in which ITC is to be claimed. ITC amount will be credited to the Electronic Credit Ledger (ECL) of such person

Input Tax - Sec. 2(62) in relation to RTP means -

♦ IGST including that paid on import of goods

♦ CGST, UTGST & SGST charged on any supply of goods or services

♦ Tax paid under Reverse Charge Mechanism (RCM)

Conditions for availing ITC [S.16(2) & Rules 36 to 45]

1. Possession of tax invoice, debit note, bill of entry, invoice issued by supplier; documents issued by ISD

2. ITC claimant must have furnished GST Return

3. Receipt of goods/services. In case of Bill-to-ship-to transactions, it is deemed that the goods/Services are received by the person on whom the bill is issued

4. If the goods against an invoice are received in lots or instalments, ITC shall be entitled upon receipt of the last lot or instalment

5. Tax by the supplier of said goods/services in respect of such supply, has been actually paid to the credit of the appropriate Government, either in cash or through utilisation of ITC admissible

6. Recipient of goods/services must pay to the supplier full consideration within 180 days from the date of issue of invoice, else the ITC amount availed by the recipient shall be added to the output liability along with interest to be calculated from the date of availing credit on such supplies till the actual date of payment. However, the reversal will apply to the unpaid amount only.

Such reversed ITC shall be entitled to avail when consideration is paid. In case of following supplies consideration is deemed to have been paid:

i. Supply without consideration as per Schedule I

ii. Any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both amount added in the value of supply that is incurred by the recipient [inserted from 13-06-2018]

7. In case of ITC on capital goods, if recipient has claimed depreciation under Income-tax Act on the tax component, then ITC shall not be allowed.

8. No credit of ITC shall be availed in respect of tax paid in accordance with the provisions on account of any suppression, fraud, confiscation of goods/conveyance or detention or seizure of goods.

9. ITC is available only to the extent reflected in GSTR 2A plus 10% of the ITC reflected in GSTR 2A. This was inserted via Rule 36(iv) on 09/10/2019. And because of COVID measures, a proviso is added where by, relief is given till Aug 2020 in the above rule and dealer can claim ITC as per Books. But in September the aggregate ITC is to be compared with GSTR 2A and claim the ITC only reflected in GSTR 2A plus 10% as mentioned in main rule.

Time to avail ITC

ITC can be claimed in the month of receipt of supply & Invoice or in subsequent month/s. However, ITC of any financial year must be claimed before

(i) Due date of filing of return for September of the following FY i.e. 20th October, or

(ii) Filing of the relevant Annual Return for the FY i.e. 31st December, whichever is earlier.

Input Tax Credits shall not be available in respect of following: (Negative List) [Sec. 17(5)]

a. Motor Vehicles for transportation of person having approved seating capacity of not more than 13 persons (including Driver) except when used for making following supplies:

(A) Further supply of such vehicles or Vessels or aircrafts; or

(B) Transportation of passengers; or

aa. Vessels and aircraft except when they are used-

(i) For making the following taxable supplies, namely-

(A) Further supply of such vessels or aircraft, or

(B) Transportation of passengers

(D) Imparting training on flying such aircraft

(ii) For transportation of goods

ab. Services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels or aircraft referred above except

(i) When they are used for the purposes as specified above.

(ii) Such services received by manufacturer of such motor vehicles: or

(iii) Such services received by a taxable person who is engaged in the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him;

b. Supply of goods or services or both -

i. Food & Beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery leasing, renting or hiring of motor vehicles, vessels or aircraft referred to above except when used for the purposes specified therein, life insurance and health insurance except where such inward supply of goods or services or both of a particular category is used by for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply [Personalised services]

ii. Membership of a club, health and fitness centre,

iii. Travel benefits extended to employees on vacation such as leave or home travel concession:

Provided that the input tax credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.

c. Works Contract Services (WCS) received for construction of an immovable property (other than Plant & Machinery) except where it is an input service for further supply of WCS.

d. Goods/Services received for construction of an immovable property (other than Plant & Machinery) on his own account including when such good/services are used in the course or furtherance of business.

For clauses (c) & (d) above, the expression:

"Construction" includes reconstruction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property;

"Plant & Machinery" means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes Land, Building or any other civil structures, Telecommunication towers and Pipelines laid outside the factory premises.

e. Composition Tax paid on inputs/services.

f. Goods/Services received by a Non-resident Taxable Person (NTP) except on goods imported by him.

g. Goods/Services used for personal consumption;

h. Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.

i. Any tax paid in accordance with provisions of -

Sec. 74 - Tax payable on account of fraud, wilful-misstatement or suppression of facts.

Sec. 129 - Detention, seizure and release of goods and conveyances in transit;

Sec. 130 - Confiscation of goods or conveyances.

Appointment & manner of claiming credit of ITC: [S. 17 & Rule 42]

1. Full ITC available when supply is used for business purpose & for taxable supplies (including zero-rated i.e. exports or supply to SEZ)

2. No ITC available when supply is used for non-business purpose.

3. No ITC available when supply is used for exempt supply except when tax free goods are exported.

"Exempt supply" u/s. 2(47) means

(i) Supply attracting NIL rate of tax

(ii) Supply which is wholly exempt from tax

(iii) Non-taxable supply u/s. 2(78) i.e. Goods/services on which GST is not levied e.g. alcoholic liquor for human consumption, petroleum crude, diesel, petrol, natural gas, Aviation Turbine Fuel, sale of land, sale of building, actionable claims (other than lottery/betting/gambling)

(iv) The value of services by way of accepting deposits, extending loans or advances in so far as the consideration is represented by way of interest or discount, except in case of a banking company or a financial institution including a non-banking financial company, engaged in supplying services by way of accepting deposits, extending loans or advances [inserted from 23-01-2018]

(v) The value of supply of services by way of transportation of goods by a vessel from the customs station of clearance in India to a place outside India. [Inserted from 23-01-2018]

4. When supply is used for business as well as non-business purpose then ITC would not be eligible to the extent attributable to such non-business purpose. ITC related to non-business purpose shall be equal to 5% of common ITC at the time of filing returns and then at the end of the financial year it will be calculated on actual basis and necessary adjustments will be made.

5. When supply is used for effecting taxable supplies (includes zero-rated) as well as for exempt supply then ITC would not be eligible to the extent attributable to the exempt supply. However value of Points (iv) & (v) mentioned above under exempt supply will not be counted while reversing the ITC.

6. Aggregate value of exempt supplies and the total turnover shall exclude the amount of Central Excise duty levied on tobacco products & other goods manufactured in India except alcoholic liquor for human consumption, opium, narcotics & narcotic drugs goods under Entry 84 of List I, State Excise duty levied alcoholic liquor for human consumption, opium, narcotics & narcotic drugs goods under Entry 51 of List II and tax on sale or purchase of goods under Entry 54 of List II of the Seventh Schedule to the Constitution of India

Appointment & manner of claiming credit of ITC: [S. 17 & Rule 43]

1. The amount of input tax in respect of capital goods used or intended to be used exclusively for non-business purposes or used or intended to be used exclusively for effecting exempt supplies shall not be credited to Electronic Credit Ledger [ECL].

2. The amount of input tax in respect of capital goods used or intended to be used exclusively for effecting supplies other than exempted supplies but including zero rated supplies shall be credited to ECL.

3. The amount of input tax in respect of capital goods not covered under clause 1 & Clause 2 above shall be credited to ECL. When CG is used for taxable as well as exempt supply during its lifetime of 5 years then ITC proportionate to exempt supply turnover is to be reversed. Such reversal is to be added to output tax liability along with interest during every tax period of the useful life of the concerned capital goods [Rule 43(h)].

4. If any Capital goods earlier covered under exempt then gets covered under common Capital goods then, Full ITC as on Invoice is credited to ECL by showing in GSTR 3B and the amount of ITC utilized for the period covered under exempt shall be added to output tax.

5. If any Capital Goods covered under Taxable then gets covered under Common capital goods then, amount of [Full ITC/60] will get reversed every month in the ratio applied to other common ITC.

6. For Capital Goods (CG) the useful life is estimated at 5 years under GST Law. If it is resold/supplied before 5 years then ITC shall be reversed @ 5% for every quarter or part thereof for balance unused period. If the tax on supply value of such CG is higher as compared to amount of ITC reversible as mentioned herein then no such reversal is required. [Sec. 18(6) r/w. Rule 40(2)].

Formulas are given in the Rules.

Claim of ITC by Banking Companies, Financial Institutions and NBFC's: [Sec. 17(4) r/w. Rule 38]

Such persons engaged in supplying services by way of accepting deposits, extending loans or advances, shall have the option to avail ITC either -

(i) Following ITC provisions in normal manners or

(ii) Every month, avail 50% of eligible credit on inputs, Capital Goods and Input Services, in that month and rest (balance) credit shall lapse. Eligible credit does not include tax paid on inputs & input services used for non-business purposes and tax paid on negative list of goods/services referred u/s. 17(5).

The option once exercised shall not be withdrawn during the remaining part of the financial year; Restriction of 50% is not applicable to tax credits available in respect of supplies from branches.

ITC under Special Circumstances: [Sec. 18 r/w. Rules 40 & 41]

	A	B	C	D
Sr. No.	Person Eligible	Point of Time	Entitlement	Conditions
1.	Person who has applied for registration within 30 days from the date he becomes liable and has been granted certificate of registration	On the day immediately preceding the date from which he becomes liable to pay tax	ITC in respect of Inputs held in (i) Stock (Raw material); or (ii) Semi Finished Goods in stock	Declaration shall be made in ITC-01 within 30 days to avail the ITC clearly specifying the details of all the inputs in column C
2.	Person who has taken Voluntary Registration u/s. 25(3)	On the day immediately preceding the date of registration	(iii) Finished Goods in stock [Applicable to Sr. No. 1 & Sr. No. 2]	ITC will not be available in respect of supply of goods and services or both after the expiry of one year from the date of issue of invoice ITC-01 needs to be filed within 30 days from the date of becoming eligible to claim ITC. [Sr. Nos. 3 & 4] The above declaration should be certified by a Practising Chartered Accountant or Cost Accountant if the ITC exceeds ₹ 2 lakh.
3.	Taxable person who supplies exempted goods or services or both and the exempted supply becomes taxable supply	On the day immediately preceding the date from which such supply becomes taxable	ITC in respect of Inputs held in (i) Stock (Raw Material); or (ii) Semi Finished Goods in stock (iii) Finished Goods in stock
4.	Registered Taxable person ceases to pay tax u/s. 10 i.e. Composition Levy	On the day immediately preceding the date from which he becomes liable to pay tax u/s. 9.	(iv) Capital Goods exclusively used for exempt supply but credit of capital goods shall be reduced by percentage points [Applicable to Sr. No. 3, Sr. No. 4]	Details shall be verified by matching concept. For capital goods ITC shall be reduced by 5% points for every quarter per year. [Applicable to Sr. No. 1, Sr. No. 2, Sr. No. 3, Sr. No. 4]
5.	Registered Person changes the constitution on account of sale, merger, demerger, amalgamation, lease or transfer of the business with specific provision of transfer of liabilities	After court order or on happening of given event	Allowed to transfer ITC that remains un-utilised in its Electronic Credit Ledger (ECL) to such sold, merged, amalgamated, leased or transferred business i.e. transferee	Details should be submitted in Form GST ITC-02 along with a request to transfer the unutilised ITC lying in his electronic credit ledger to the transferee. The transferor shall also submit a copy of a certificate issued by a practising chartered account or Cost Accountant certifying that the sale, merger, demerger, amalgamation, lease or transfer of business has been done with a specific provision for transfer of liabilities. Transferee shall accept the details furnished in Form GST ITC-02 and then the credit will be transferred. The inputs and capital goods so transferred shall be duly accounted for by the transferee in his books of account
6.	Registered Taxable Person who has availed ITC, (i) Switches over to discharge tax liability under composition scheme; or (ii) Goods and/or services supplied by him become exempt absolutely	Date of switchover or supply becoming wholly exempt	Pay an amount by way of debit in Electronic Credit Ledger or Electronic Cash Ledger equivalent to the credit of input tax in respect of inputs held in stock and input contained in semi-finished or finished goods held in stock, on the date of exercising such option. Balance in Electronic Credit Ledger shall lapse
7.	Separate registrations for Multiple places of business within a state or Union territory.	Date after separate registrations are taken.	Transfer, either wholly or partly, the unutilised input tax credit lying in his electronic credit ledger to any or all of the newly registered place of business.	Shall furnish within a period of thirty days from obtaining such separate registrations, the details in FORM GST ITC-02A electronically on the common portal. ITC will be transferred on the basis of ratio of value of Assets held by them. The newly registered person shall accept the details so furnished on the common portal and then the ITC will be transferred in his credit ledger.

Section 18(2) A registered person shall not be entitled to take input tax credit under sub-section (1) in respect of any supply of goods or services or both to him after the expiry of one year from the date of issue of tax invoice relating to such supply.

44A. Manner of reversal of credit of additional duty of Customs in respect of Gold dore bar.- The credit of Central tax in the electronic credit ledger taken in terms of the provisions of Section 140 relating to the CENVAT Credit carried forward which had accrued on account of payment of the additional duty of customs levied under sub-section (1) of Section 3 of the Customs Tariff Act, 1975 (51 of 1975), paid at the time of importation of gold dore bar, on the stock of gold dore bar held on the 1st day of July, 2017 or contained in gold or gold jewellery held in stock on the 1st day of July, 2017 made out of such imported gold dore bar, shall be restricted to one-sixth of such credit and five-sixth's of such credit shall be debited from the electronic credit ledger at the time of supply of such gold dore bar or the gold or the gold jewellery made therefrom and where such supply has already been made, such debit shall be within one week from the date of commencement of these Rules. [Inserted from 17-08-2017].

When Inputs and Capital Goods are sent to Job worker, Principal is eligible to take ITC for same as under: [Sec. 19 r/w. Rule 45]

Entitlement	Period of Return	Remarks
Inputs	Within 1 Year	ITC on Inputs & Capital Goods available even if such inputs are sent directly from suppliers place to job worker without they being first brought to his place of business. Period of 1 & 3 year(s) to be counted from the date when the said inputs were sent out to job worker/date of receipt by job worker if the goods are sent directly. This provision will not be applicable to Moulds, Jigs, Dies, Tools sent for job work. It should be sent under the cover of a challan and where the goods are sent from one job worker to another job worker, the challan may be issued either by the principal or the job worker sending the goods to another job worker: Provided that the challan issued by the principal may be endorsed by the job worker, indicating therein the quantity and description of goods where the goods are sent by one job worker to another or are returned to the principal: Provided further that the challan endorsed by the job worker may be further endorsed by another job worker, indicating therein the quantity and description of goods where the goods are sent by one job worker to another or are returned to the principal.
Capital Goods	Within 3 Years
On violating condition of return of Inputs and Capital Goods, it shall be deemed that such inputs had been supplied by the principal to the job-worker on the day when the said inputs were sent out and output tax liability shall be payable along with applicable interest. [Rule 45]

Input Service Distributor (ISD) shall distribute credits by way of issue of ISD Invoice as per Rule 54(1): Credit of IGST, CGST & SGST can be passed on as under [Sec. 20 r/w. Rule 39]

"Input Service Distributor" u/s. 2(61): Means an office of the supplier of goods or services or both which receives tax invoices issued u/s. 31 towards receipt of input services and issues a prescribed document for the purposes of distributing the credit of CGST (SGST in State Acts) and/or IGST or UTGST paid on the said services to a supplier of taxable goods or services or both having same PAN as that of the office referred to above. Thus ISD is of ITC on Services only and not on goods.

For the purpose of distributing credit, ISD is deemed to be a supplier of service.

Place of Supply	Type of credit distributed and passed on as per Rule 39(e) & (f):
If the Location of ISD and Recipient of Input Services Credit	If credit distributed is of CGST	If credit distributed is of SGST/UT	If credit distributed is of IGST
(i) Is in same States - Business Verticals	Pass on as CGST	Pass on as SGST/UT	Pass on as IGST
(ii) Is in different States	Pass on as IGST	Pass on as IGST	Pass on as IGST

Conditions for Distribution of Credit

1. Prescribed documents have to be issued to each of the recipients and such documents contains details as may be prescribed

2. Credit distributed shall not exceed the amount of credit available for distribution

3. Credit of tax paid on inputs service attributable to recipient to be distributed to that recipient

4. Credit of tax paid on input services attributable to more than one recipient to be distributed only amongst such recipient to whom the input service is attributable pro rata on the basis of turnover in State of such recipient during relevant period to the aggregate of the turnover of all such recipient and which are operational in the current year.

Relevant Period: If the recipients of credit have turnover in their States in the FY preceding year during which credit is to be distributed, the said FY; or

If some or all recipient of credit do not have turnover in their States in the FY preceding year during which credit is to be distributed, the last quarter for which details of such turnover of all the recipients are available, previous to the month during which credit is to be distributed.

An Input Service Distributor shall distribute input tax credit in the manner and subject to the conditions specified below [Rule 39]

(a) ITC available for distribution in a month shall be distributed in the same month and the details thereof shall be furnished in FORM GSTR-6.

(b) ISD shall separately distribute the amount ineligible as ITC u/s. 17(5) and the amount eligible as ITC.

(d) ITC is distributed in proportion to the turnover of individual recipient whether registered or not or making exempt supply to the aggregate of the turnover of all the recipients in a Relevant Period

(e) ISD shall issue an Invoice or credit notes or debit notes in accordance to the respective rules clearly indicating the credit to be distributed as CGST, SGST, UTGST & IGST. If the ITC is reduced then also it will be distributed and added to the output liability of the recipients

(f) Excess distribution of credit by ISD, more than available for distribution is to be recovered from ISD along with interest.

ITC Rules for Real Estate: For ITC other than Capital goods

i. In case of real estate value of ITC attributable to exclusively effecting taxable supplies (T4) will be zero since all the ITC always will be commonly used for both booked as well un-booked apartments.

ii. Out of Common credit C2 (which is Total Credit eligible C1 - ITC for taxable Supplies T4), D2 is the credit for non-business purpose and it is 5% of Common Credit and D1 is attributed to Exempt supplies and is calculated as: D1 = (E/F)*C2

Where E= Aggregate carpet Area for apartments not booked till OC or exempt.

F= Aggregate carpet area of the Project. Aggregate of D1 & D2 needs to be reversed. Thus ITC available = T4+ [C2-(D1+D2)]

iii. At the end of financial year before due date of September return of next financial year, D1 & D2 needs to be calculated for the whole year and any mismatch needs to be either claim as credit or reverse as the case may be.

iv. The above ITC will be calculated for each project separately.

v. Also at the end of the project the ITC of the whole project needs to be recalculated as above and any mismatch needs to be either claim as credit or reverse as the case may be.

vi. For Residential apartments Projects after 01/04/2019 for which new rates will apply ITC will be Zero.

vii. Similar method of calculation of ITC will apply for ratio of commercial apartments and residential apartments in a Project except in RREP.

viii. In all the above for real estate as well for others all the ITC needs to be shown first as ITC available and then reversed in Form GSTR 3B.

ITC Rules for Real Estate: For ITC of Capital goods

i. ITC of capital goods will be treated as common credit and hence after taking the full credit, 5 years useful life credit will be calculated. And every year up to 5 years proportionate amount of ITC will be added back to output liability with Interest.

ii. E/F will be similar as calculated above.

iii. At the end of the project ITC for capital goods will be calculated again as per Rule 43 formula, and any mismatch will be either added back to output liability or claimed back as credit.

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